Blog: As China tumbles, Apple targets India for growth

07 AUG 2017

Apple continues to face headwinds in China, so the smartphone giant is looking to India to not only fill a huge revenue gap created by six consecutive quarters of double-digit sales declines in China, but also as its first iPhone manufacturing hub outside of the mainland.

Over the last 18 months, Apple’s quarterly sales in greater China plunged by more than $10 billion – dropping from a peak of $18.4 billion in Q4 2015 to just $8 billion in Q2 2017. It reported last week revenue in the region dropped 10 per cent year-on-year in its fiscal Q3 (calendar Q2), which covers the three months to 1 July.

Apple’s share of the greater China smartphone market, which covers the mainland, Hong Kong and Taiwan, fell to 9 per cent in the January-June period from a peak of 14 per cent in the first half of 2015, according to Counterpoint Research.

iPhone shipments in China in calendar Q2 2017 fell 1 per cent year-on-year, while worldwide iPhone shipments increased 3 per cent to 41 million units – the same rate as the overall smartphone market, the research company reported.

Apple’s share of the global smartphone market slipped to 11.2 per cent from 11.3 year-on-year in calendar Q2, as Chinese rivals Huawei, Oppo, Vivo and Xiaomi all increased their shares by at least 1.5 percentage points, according to Counterpoint Research. China-based smartphone vendors accounted for a record 48 per cent of global shipments in Q2, eating into both Apple’s and Samsung’s shares.

China lost its position as Apple’s second largest market in calendar Q3 2016.

Just the beginning
Meanwhile, in May Apple started producing iPhone SE smartphones in India, the second largest smartphone market in the world after China and one of the fastest growing. India is only the second country where iPhones are produced after China.

For months Apple pushed the Indian government for a waiver of custom duties on imports of components and equipment for 15 years, as well as an exemption from the country’s 30 per cent local sourcing requirement.

Last week Apple asked the government to offer tax breaks to its suppliers if the country aims to become a major manufacturing hub for smartphone components and iPhones.

Government officials have said it won’t give exemptions to a single company, but is working out a new policy which would apply to all device makers.

While India is keen for Apple to expand in the country to support Prime Minster Narendra Modi’s Make in India campaign, the company continues to run into obstacles in China as the government tightens control over the internet.

Cyber restructures
In late July Apple announced it will remove “some” VPN applications from the App Store in China, following new regulations to crack down on VPN services which bypass the country’s massive firewall to access overseas sites. In mid-July Apple said it will set up its first data centre in China to comply with the country’s more restrictive cyber security law requiring global companies to store information locally.

Tighter internet regulations could impact Apple’s push into services, such as Apple Pay, iTunes, iCloud and the App Store, which it is counting on helping make up for tepid iPhone sales in China.

The question is: can Apple turn things around in greater China and once again approach the revenue levels of 2015 ($61 billion versus $46.3 billion in 2016). Apple CEO Tim Cook said it was “very encouraged by the results this quarter” – he has a point since the 10 per cent drop was a major improvement on 33 per cent and 30 per cent declines in calendar Q2 and Q3 2016 respectively.

Avi Greengart, research director for platforms and devices at GlobalData, attributed the latest decline to Chinese consumers waiting for the iPhone 8, which will be released next month. However, Greengart’s account doesn’t fully explain why sales have dropped for 18 months.

A quick turnaround in China is unlikely – particularly as China handset makers expand their global shares – which is why Apple is banking on India as a future growth engine and been carefully negotiating with the Modi government to expand its retail footprint and set up local production.

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

Author

Joseph Waring

Joseph Waring joins Mobile World Live as the Asia editor for its new Asia channel. Before joining the GSMA, Joseph was group editor for Telecom Asia for more than ten years. In addition to writing features, news and blogs, he...